COMM 320 Chapter Notes - Chapter 5: Fixed Cost, Switching Barriers, Capital Requirement
23 Oct 2016
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5 competitive forces model (porter): understanding structure of an industry: threat of substitutes: price that consumers are willing to pay for a product depends in part on the availability of substitute products, threat of new entrants. If the firms in an industry are highly profitable, the industry becomes a magnet to new entrants. Unless something is done to stop this, the competition in the industry will increase, and average industry profitability will decline. Firms in an industry try to keep the number of new entrants low by erecting barriers to entry. A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry. Let"s look at 6 of them: economies of scale: industries that are characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. Economies of scale occur when mass-producing a product results in lower average cost.
